S&P 1800 Or Bust As Futures Ramp Continues

The overnight global scramble to buy stocks, any stocks, anywhere, continued, with the Nikkei soaring higher by 2% as the USDJPY rose firmly over 100, to levels not seen since May as the previously reported speculation that more QE from the BOJ is just around the corner takes a firm hold. Sentiment that the liquidity bonanza would accelerate around the world (with possibly more QE from the ECB) was undented by news of a surge in Chinese short-term money market rates or the Moody's one-notch downgrade of four TBTF banks on Federal support review. The release of more market-friendly promises from China only added fuel to the fire and as a result S&P futures are now just shy of 1800, a level which will almost certainly be taken out today as the multiple expansion ramp continues unabated. At this point absolutely nobody is even remotely considering standing in front of the centrally-planned liquidity juggernaut that has made "market" down days a thing of the past.

Market Re-Cap

Stocks traded mixed in Europe this morning, with the FTSE-100 in the UK outperforming where Antofagasta traded up over 2%, recovering from losses made yesterday and Hargreaves Lansdown, which was initiated with an overweight rating by JPMorgan Cazenove advanced 1%. Analysts noted that the company's product offering positions it well to continue to exploit structural growth opportunities in the UK for many years to come. Broad based JPY weakness which ensued overnight on Thursday following comments from Japanese Finance Minister Aso and in turn saw USD/JPY move above 100.00 yesterday for the first time since early Sep continues to be observed across the board today. The price action going forward is expected to remain supported by large option expiries at 100.00 level, good sized strikes are also said to expire next week. Overall, the price action was somewhat muted, but volumes are expected to pick up, as market participants digest the release of the latest Empire Manufacturing and Import Price data reports. Of note, various equity options and futures expiries may result in sharp, albeit brief volume spikes.

US data docket

US: Empire State Manufacturing Index, cons 5.00 (8:30)

US: Industrial production m/m, cons -0.4% (9:15)

Overnight news bulletin from RanSquawk and Bloomberg:

China party reform document: to encourage overseas investment by individuals and companies, to ease one-child policy.

Fitch said China is only at the start of a busy policy making calendar leading up to the national people's congress in March.

EU says no Euro-area 2014 budget plan in serious non-compliance. Calls on Italy to take necessary measures on 2014 budget and says that Spain may miss 2014 budget-deficit target.

Treasuries advance, with all maturities headed for a weekly gain, after Yellen yesterday signaled she would continue with stimulus and downplayed risks that QE is inflating asset price bubbles.

Yellen left open the possibility that the central bank could reduce the interest rate on reserves as a way of aiding the economy

Germany argued against a joint backstop for struggling euro-area banks as European finance ministers renewed their debate on how to handle the costs of managing failed lenders

China’s Communist Party pledged to loosen its family planning policy, allowing couples to have two children if either parent is an only child; will also abolish the practice of re-education through labor, allow non-state investment in state projects, Xinhua reports

China’s benchmark money-market rate jumped the most in almost five months as the central bank drained cash from the financial system for a second week

Americans seeking cheap insurance on the Obamacare health exchanges may be in for sticker shock if they get sick next year, as consumers trade lower premiums for out-of-pocket costs that can top $6,000 a person

Just hours after Obama announced a one-year reprieve for canceled insurance plans, industry executives warned it would cost taxpayers and consumers while state officials split on their support for it

China party reform document: to encourage overseas investment by individuals and companies, to ease one-child policy.- To greatly reduce government intervention in resource allocation- To scrap residence restrictions in small cities and townships.- To lift restrictions on residence registration in orderly manner in mid-sized cities.

Fitch said China signals long term reform, but implementation is key. Fitch said China is only at the start of a busy policy making calendar leading up to the national people's congress in March.

According to sources, potential buyers of Spain's rescued banks, which include foreign investors, are pressuring the government to sweeten sales with more state aid.ECB says banks to repay EUR 3.155bln from 1st 3y LTRO and EUR 431mln from 2nd 3y LTRO.

US Headlines

President Obama, trying to quell a growing furor over the rollout of his health care law, bowed to bipartisan pressure on Thursday and announced a policy reversal that would allow insurance companies to temporarily keep people on health plans that were to be cancelled under the new law because they did not meet minimum standards.

US Senate Banking Committee could vote on Yellen nomination for Fed chair as early as next week, according to a committee aide.

Equities

Stocks moved higher in recent trade, supported by the release of China party reform document which revealed that the country is to encourage overseas investment by individuals and companies, to ease one-child policy. Even though the meeting by Chinese leaders concluded earlier in the week, lack of details on highly-awaited reforms following the meeting initially weighed on the sentiment as market participants questioned any immediate action by China to spur growth.

Moody's concluded a review of eight large US banks; said outlook stable on all eight bank holdings and their main operating units; Moody's cut; Goldman Sachs long term senior debt to Baa1 from A3, JP Morgan long term senior debt to A3 from A2, Bank of New York Mellon long term senior debt to A1 from Aa3. Moody's confirmed; Wells Fargo's, Bank of America's and Citigroup's long term senior debt.

Also, NY Times reported that US is investigates currency trades by major banks. Although the investigation is at an early stage, authorities are already signaling the likelihood of a legal crackdown.

FX

Broad based JPY weakness which ensued overnight on Thursday following comments from Japanese Finance Minister Aso and in turn saw USD/JPY move above 100.00 yesterday for the first time since early Sep continues to be observed across the board today. As a reminder, Japanese Finance Minister Aso said Japan must always be ready to send signal to markets to curb excessive and one sided FX moves. He added that it is important that Japan has intervention as FX policy option. The price action going forward is expected to remain supported by large option expiries at 100.00 level, good sized strikes are also said to expire next week.

Analysts at HSBC see more weakness for EUR going forward, though maintained year-end forecast of 1.3000 and 1.2400 for end-2014.

Hedge fund Paulson & Co maintained its stake in SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, in the Q3 after slashing its stake by more than half in the Q2 when prices fell.

China’s nickel pig iron output (NPI) is expected to rise by as much as one third in 2013, on strong demand and new capacity coming on stream, according to Antaike analyst Wang Chongfeng. Furthermore, China’s molybdenum sector is unlikely to find support in domestic demand but policy changes could bolster the market in the future.

US President Obama says we do not want Iran having nuclear weapons, would destabilise entire region and trigger nuclear arms race; leaving all options on table to deal with it.

Iran has only marginally expanded uranium enrichment capacity at Natanz plant since August according to a UN report. According to an official, the drop in supplies from Libya following protests at oil ports has cost the country USD 6bln.

Royal Dutch Shell and Sinopec are reported to be drilling exploration wells to test the shale potential of an unexplored area in central China.

DB's Jim Reid complete the overnight recap:

Taking a look at markets this morning, demand for carry is the main theme as markets price in a lower probability of tapering in 2013. EM Asian sovereign credit is the main beneficiary of this theme overnight. Indonesian government bonds are around half a point to 1 point higher across the curve and Indo 5yr CDS is around 17bp tighter. Asian EM FX is a focus with selling of USDMYR (- 0.2%) and USDKRW (-0.1%). In the equities space, Asian stocks are performing strongly led by a 1.7% gain in the TOPIX after USDJPY broke through the 100 mark yesterday. USDJPY is currently hovering around 100.2 which is a near four-month high and it comes after comments from the Japanese finance minister yesterday that FX intervention is a tool at Japan’s disposal. Chinese Ashares are around 2.5% firmer after underperforming since the country’s Third Plenary meeting concluded on Tuesday and there is chatter that the government will release further detail on market reforms in the next few days.

Coming back to yesterday, again it was Yellen who provided the spark for markets. Indeed equities were headed south before Yellen spoke, but sentiment bottomed soon after the start of her testimony and the S&P500 rallied 0.6% in the hours following. 10yr USTs yields had a volatile day after rallying on the back of the Senate hearing; tracking higher again after a lacklustre 30yr auction before rallying again into the close to finish 1bp lower on the day at 2.69%. EM assets in EMEA and LATAM performed strongly across equities, FX and fixed income. After the NYSE close, Moody’s announced that it had concluded its review of eight large US banking groups and had decided to downgrade the credit rating of four bank holding companies: BONY Mellon, Goldman Sachs, JPMorgan Chase and Morgan Stanley. The downgrades reflected the rating agency’s view of the reduced probability of US government support for bank holding company debt after what Moody’s describes as “substantive progress in establishing a credible framework to resolve a large, failing bank”. Senior credit spreads on the affected banks jumped up a couple of basis points following the headline but there appeared to be minimal flow given the late timing of the Moody’s announcement. It will be interesting to see how sub-debt trades later today.

In terms of the data flow, there was some focus on the Euro area Q3 GDP. Euro Q3 GDP expanded at 0.1% QoQ which was in line with consensus (-0.4% YoY), but France was the underperformer (-0.1% vs 0% expected). Germany (+0.3%), Spain (+0.1%), Italy (-0.1%) growth numbers were all consistent with market expectations. DB’s Gilles Moec writes that the details of the French GDP report are depressingly consistent with the usual stereotypes of the French economy’s weaknesses, in particular a deeply negative contribution from net exports (-0.7 pp qoq, worst since Q1 2011). Back in the US, initial jobless claims for the week November 9 fell -2k to 339k after the prior week was revised up +5k to 341k. Though the latest week’s jobless claims were above the 330k expected, it had the effect of lowering the 4-week moving average -6k to 344k—which DB’s Joe Lavorgna points out is the lowest level since Oct 12 (338k).

Looking at today’s calendar, the focus returns to the data flow. Starting with Europe, final Eurozone CPI numbers will be published today. Recall that the preliminary number was -0.1% MoM, a number which preceded the ECB’s recent rate cut. Across the Atlantic, a number of important manufacturing-related data releases are scheduled. The first of these is the NY Fed Empire Manufacturing survey where consensus is expecting a bounce to 5.0 in November from 1.52 last month. Industrial production follows shortly afterwards, and wholesale inventories round out this week’s dataflow. In Europe today, there is some expectation that EU finance ministers will today agree on putting in place some form of national backstop for banks, before the ECB’s latest stress tests are completed next year.